Bell Davies Trading Ltd & Anor v Secretary of State for Trade & Industry

Whether one person controls another for the related-persons rules governing import quota applications is a question of fact and degree. Control exists where a person is operationally in a position to exercise direction, although this is not the only form of control.

On a public interest winding-up petition, the court must balance all reasons for and against winding up. It may dismiss the petition subject to undertakings which ensure that unlawful conduct ceases. The availability of declaratory proceedings as a more appropriate means of resolving a disputed regulatory question does not, without more, make the winding-up petition an abuse of process.

The Secretary of State presented public interest winding-up petitions against two companies which organised numerous separately incorporated companies to apply for non-traditional import quotas. The central dispute was whether those quota companies were related persons under article 2.3(b) of Commission Regulation (EC) 1394/2001 and article 143 of Commission Regulation (EEC) No 2454/93.

David Richards J held that the quota companies were controlled by the appellants and that the scheme was unlawful. He dismissed the petitions conditionally upon undertakings that the scheme would cease and ordered the appellants to pay 75% of the Secretary of State's costs. In a second judgment, he refused a declaration that proposed arrangements for 2004 would comply with the undertakings.

The companies appealed both decisions. The issues were control, the ability to appeal against the undertakings, the proper exercise of the public interest winding-up jurisdiction, the proposed 2004 arrangements and costs.

1. Both appeals dismissed. Whether the quota companies were controlled by the appellants for article 143(1) of Commission Regulation (EEC) No 2454/93 was a question of fact and degree. Control could be established where the appellants were operationally in a position to exercise direction over the quota companies. The individuals concerned merely lent their names to companies formed to obtain licences. They made no relevant business decisions, and the quota companies had no independent business. The appellants therefore controlled them. The potential choice between two operating options did not alter that conclusion because the essential decisions remained with the appellants. The scheme was consequently unlawful.

2. A party who gives an undertaking to the court cannot ordinarily appeal against it. An undertaking is normally a voluntary litigation act, even when given under threat of an order. The usual course is to apply to the court which received it for release or variation because of changed circumstances or because its continuation has become unnecessary, oppressive or unjust.

   This case was exceptional. In substance, the appeal challenged the judge's decision to make dismissal of the petitions conditional upon undertakings. It was unrealistic to expect solvent companies disputing the illegality of their businesses to risk winding-up orders by refusing the undertakings. The Court of Appeal therefore entertained the challenge.

3. Under section 124A of the Insolvency Act 1986, the judge had correctly balanced the reasons for and against winding up. The court could dismiss a public interest petition on undertakings, whether or not the Secretary of State supported that course, or could wind up the company if those offering undertakings could not be trusted. The Secretary of State's willingness to accept undertakings was an important consideration: Re Supporting Link [2004] EWHC 523 (Ch) applied.

   The companies had operated an unlawful scheme, but there was no deliberate wrongdoing, and the scheme would cease. The undertakings ensured that cessation. Had acceptable undertakings not been given, winding up would have been appropriate in the public interest and on just and equitable grounds.

4. Declaratory proceedings would have been a more appropriate means of deciding the control issue, and there was a reasonable prospect that the issue was exceptional enough to justify declaratory relief. Their availability did not make the Secretary of State's petitions an abuse of process. The Secretary of State's function was to protect the public interest. The companies could themselves have sought a declaration and then requested a stay of any winding-up petitions.

5. The proposed 2004 arrangements remained under the appellants' control and were artificial. There was also no ground for interfering with the costs order below.

1. Court of Appeal (Civil Division): Both appeals were dismissed. The findings of control and unlawfulness, the undertakings, the refusal of declaratory relief and the costs order were upheld: [2004] EWCA Civ 1066.

2. High Court, Chancery Division, Companies Court: On 19 December 2003 David Richards J held that the quota companies were controlled by the appellants and that their scheme was unlawful. He dismissed the public interest winding-up petitions conditionally upon undertakings and ordered the appellants to pay 75% of the Secretary of State's costs. No citation is stated.

3. High Court, Chancery Division, Companies Court: On 16 January 2004 David Richards J refused a declaration that the appellants' proposed arrangements for 2004 would comply with the undertakings. No citation is stated.